Does an HSA makes sense if I am healthy?
How much can you save with an HDHP/HSA plan? Well, if Tom switches to an HDHP/HSA plan and has modest medical expenses in the first 5 years and is able to save $1,500 per year in his HSA, at the end of 5 years he has $7,500 (plus interest) in his HSA for future medical expenses.
In year 6, Tom has an unexpected surgery costing him $30,000. Tom pays his $4,000 deductible with the money in his HSA and his HDHP pays the rest.
At the end of year 6 and following his surgery, Tom still has $7,500 plus interest in his HSA, as his annual $4,000 deposit replaces the deductible spent on his surgery.
Does an HSA make sense if I have a medical condition?
Let's suppose that Tom has a medical condition, and under his old health care plan he spent $1,000 per year on co-pays ($600 for prescriptions and $400 on other co-pays). Tom then chooses to switch to an HDHP/HSA plan with a $4,000 deductible, saving $4,080 in premiums. Tom and his employer in turn deposit $4,000 of the premium savings into his HSA.
This year under his new HDHP/HSA plan, Tom's total cost of medications and medical services came to $6,000. Under his new plan, Tom paid for the first $4,000 (the deductible) from his HSA, with the HDHP picking up the rest. At the end of the year, Tom has a zero balance in his HSA, but he did not incur any additional out-of-pocket costs, and he saved taxes on his HSA deposits.
|
How can an HSA work for you?
Try this real life example...
Tom has a family health plan with a $20 Doctor's Office Co-pay, a $500 Deductible, and 80/20 coinsurances up to an additional $2,000 out-of-pocket. If he were hospitalized, he would have to pay the first $500, and then 20% of the bill until he's paid another $2,000. The cost of his family plan is $850 per month, with Tom's employer paying $425 and Tom paying $425.
Tom's employer is offering a new option of HDHP (High Deductible Health Plan). The new plan pays for all of his family's medical expenses after the family's first $4,000 (the deductible). The new HDHP is $510 per month, which the employer will pay $350, and Tom will have to pay $160. The employer will also offer Tom $100 per month towards funding an HSA (Health Savings Account).
Having lowered his monthly premium payment from $850 to $510 per month, Tom can take $230 of his $265 monthly savings to also fund his HSA. This gives Tom $3,960 per year to pay for out-of-pocket medical expenses. If over the course of the year, Tom and his family only spend $2,500 in medical expenses, he retains his HSA balance of $1,460 as well as its accrued interest, which is available for future medical expenses.
What happens with an HSA if I am hospitalized?
It comes as a big surprise, but one of Tom's dependents needs a $30,000 surgery. His old plan required him to pay the first $500 (the deductible) and then required him to pay 20% of the remaining cost up to $2,000. This means that Tom is responsible for $2,500 out-of-pocket to pay the hospital, not to mention the $500 in co-pays for medications and physical therapy necessary throughout the year.
This year he switches to the new HDHP/HSA plan, saving he and his employer $4,080 in premiums. $4,000 of the savings is deposited into Tom's HSA. Should anyone in Tom's family require hospitalization over the course of the year, Tom has $4,000 available in his HSA to cover the deductible. In a worst-case scenario, Tom's tax-free $4,000 HSA deposit for the year is used to pay his $4,000 family deductible and no additional out-of-pocket expenses. Any prior HSA balance remains in the account and continues to earn interest for future medical expenses.
|
